Wednesday, June 29, 2005

Better Default than "Debt Relief"

G8 claims to write off the debt of $40 billion that highly indebted poor countries owe the World Bank, the International Monetary Fund, and the African Development Bank, saving them the debt service of $1.5 billion a year. What's in fine print?

The debt deal enacts 100% cancellation to these creditors for 18 countries in the Highly IndebtedPoor Countries (HIPC) Initiative. The other 20 countries that are part of the HIPC Initiative will be eligible for debt cancellation on much less favorable terms: only after reaching the “completion point” in the HIPC Initiative; to reach this point, these nations must adhere to economic policy conditions which have been detrimental to growth and poverty eradication.

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For the 20 HIPC countries beyond the 18 that have now qualified for cancellation, it could take years before they become eligible for cancellation. After all, it took the 18 countries included in the G-8 proposal eight years to satisfactorily implement the harmful economic conditions mandated in the HIPC process and thereby reach “completion point”. In order to progress to these points, nations must draft and have the IMF/World Bank approve Poverty Reduction Strategy papers (PRSPs) and be in compliance with conditions on other World Bank and IMF loan agreements, including the Poverty Reduction and Growth Facility (PRGF) of the IMF. PRSPs and PRGF loans contain hundreds of policy conditions that nations must enact in order to qualify for debt cancellation. Jubilee USA and social movements oppose the linking of debt cancellation to countries’ implementation of such economic policies.

These economic policies include privatization of government-run services and other entities, increased trade liberalization, and budgetary spending restrictions, as mandated by the IMF and World Bank. These policies have not been proven to increase per capita income growth or reduce poverty as found in research by the Center for Economic and Policy Research. Jubilee USA and social movements clearly call for these conditions and polities to be abandoned. (emphasis added, Debayani Kar and Neil Watkins, "The G-8 Debt Deal: First Step On A Long Journey," 21 Jun. 2005)

That's essentially the same old blackmail as the bad old Structural Adjustment Programs.

The poor have already more than repaid their debt. Take Africa, for instance. "As the United Nations Conference on Trade and Development’s 2004 report reveals, 'the continent received some $540 billion in loans and paid back some $550 billion in principal and interest between 1970 and 2002. Yet Africa remained with a debt stock of $295 billion'" (Norm Dixon, "Africa Needs Justice Not Charity," Green Left Weekly, 29 Jun. 2005). Enough is enough. Compelling them to pay a penny more would be a crime.

As the G8 charade demonstrates, however, there is no such thing as "debt relief," doled out as charity, with no strings attached. Paltry gains hardly justify pains of structural adjustment to meet the creditors' conditions.

The best bet for global justice activists in highly indebted countries is to force their governments to default. Countries "with more than $1 billion in international bonds outstanding" can pull off an "orderly default," as Norman Strong ("the pen name of someone who spends his life surrounded by financiers and central bankers") explained in "How to Default: A Primer" (Left Business Observer 99, February 2002). The virtue of "orderly default" is that, unlike in the case of "debt relief" trumpeted by the G8 power elite, which come with stringent policy prescriptions and excruciatingly slow timetables, indebted governments can cut debts more on on their own terms and on their own schedules than creditors' (though the terms still have to be negotiated with "market makers"). By now, activists have real-world examples of economic recovery following default: e.g., Argentina (one only wishes that Argentina had not squandered its reserves to defend its exchange rate peg prior to the default). Why not follow them?

For "the poorest countries, who can't sell bonds, and rely largely on official lenders like governments and the World Bank" (Strong, February 2002), Strong recommends the work of such organizations as Jubilee USA, but the G8 package painfully illustrates how far the Drop the Debt campaign has fallen short. There is still no way out for the poorest except a debtors' cartel for collective default. The G8 "debt relief," which separates the poorest from the next poorest and obliges each to jump through numerous policy hoops individually, is precisely designed to prevent such collective action.